Entertainment

Can T-Mobile Survive Without AT&T?

AT&T’s bid to take over T-Mobile suffered a major setback this week when the Federal Communications Commission said the merger wasn’t in the public interest since it would significantly diminish competition in the industry. Before the decision could be reviewed by a judge and officially rejected by the FCC, AT&T formally withdrew its application. While that doesn’t mean the deal’s dead, it makes it more of a longshot than ever.

The news is certainly welcome to many customers, Sprint, and any number of people you could name from the long list of official public comments on the application (viewable here by entering Proceeding No. “11-65”), but it’s a troubling development for Deutsche Telekom, which badly wants to sell T-Mobile USA. There are other potential suitors for the company (such as cable companies and many foreign carriers), but AT&T was clearly willing to pay top dollar for its assets, mainly because it’s the company that could make the most use of T-Mobile’s spectrum and customer base.

If the merger with AT&T doesn’t happen, it’s going to leave T-Mobile in a troubling position. Even though it’ll get a $4 billion “breakup” payout from AT&T, T-Mobile would emerge on the other side without many credible long-term solutions.

T-Mobile's iPhone Problem

Although it’s America’s fourth largest wireless provider, T-Mobile actually has a lot going for it right now. It has a solid nationwide network bolstered by fast-performing HSPA+ 42 technology, a lot of great smartphones to satisfy high-end customers, and the best value plans among the major carriers. Despite all this, T-Mobile has been losing subscribers (and its juicy two-year contracts) for over a year. Uncertainty over the AT&T deal is probably a factor, but there’s something else holding back the carrier: Apple's iPhone, or rather T-Mobile’s lack of it.

Looking at the most recent statistics from comScore, Android is the top mobile platform in the U.S., at 44.8%, but Apple’s iOS has a solid second place with 27.4% of the market. Importantly, both are growing, and given the unprecedented sales of the iPhone 4S, Apple’s going to factor highly in those numbers for the foreseeable future.

Given those numbers, it doesn’t take a genius to see how hard it would be to compete in a market if you’re cut off from almost 30% of it at the get-go. It’s rumored that Sprint paid an huge price to offer the iPhone to its customers (about $20 billion), and CEO Dan Hesse has said that, prior to the release of the iPhone 4S, the iPhone is the No. 1 reason customers leave Sprint. If Sprint hadn’t gotten the iPhone, it would effectively be relegating itself to a “second tier” carrier, in between Verizon/AT&T but larger than regional carriers like US Cellular and C Spire.

That’s exactly where T-Mobile will find itself if the deal doesn’t happen. Again, the merger isn’t dead, but given the government’s concerns about competition, it’s looking more and more likely that T-Mobile will end up as some kind of independent entity — either in name or in practice — when all this merger business is said and done. That’ll leave it in a weakened position, with still no iPhone in its lineup.

No Plan for LTE

Why couldn’t T-Mobile just work out its own deal with Apple, maybe spending some of that $4 billion payout? It could, but there’s a technical reason why T-Mobile doesn’t offer the iPhone now: the iPhone’s radio doesn’t support T-Mobile’s unusual 1700MHz band. That could easily be changed in future models, of course, but there’s another factor at play: LTE.

It’s only rumor at this point, but there’s a good chance the next iPhone may have LTE. Currently Verizon and AT&T have active LTE networks, and Sprint has a plan to introduce the technology in the near future. Right now, however, T-Mobile’s LTE plan is to become part of AT&T. If that doesn’t happen, it’ll be forced to revert to its old plan of partnering up to serve LTE to its customers. Plus it would have to figure out its radio issues with Apple at the same time. For that all to happen in time for the next iPhone — which could drop anywhere between summer and fall 2012 — T-Mobile would have to be working these things out right now, and since AT&T is still pressing forward with plans for a merger, that’s probably not happening.

So that leaves T-Mobile out of the iPhone game until 2013, at the earliest. That’ll leave the carrier way behind, settling for an ever-smaller piece of the provider pie. It all adds up to a not-so-pleasant picture. T-Mobile could still turn things around, but it would need to start putting the pieces in place now if it’s going to have a hope at staying competitive. Otherwise, the company’s German overseers may simply decide it’s worth more to simply chop it up and sell the pieces.

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